Employees in Chicago and around Illinois often have long-term disability insurance offered through their employers, but often they do not know just how much leeway the insurer has in deciding whether or not they are “disabled” under the terms of the plan or policy. It largely depends on whether the insurer, or claims administrator, has discretionary authority to interpret the terms of the plan and make decisions on benefit claims. It essentially means a court reviewing your benefit denial would give a lot of deference to the insurer. Naturally, insurers always want such a term in the plan.
As we recently posted, though there is an Illinois regulation which bans these discretionary clauses in disability insurance policies, 50 Ill. Adm. Code § 2001.3, insurers have begun to argue they have discretion if the granting language is in a document other than the insurance policy. Recently, Cigna made that exact argument in Novak v. Life Insurance Company of North America, et al., 2013 U.S. Dist. LEXIS 95057 (N.D. Ill. July 9, 2013). Judge Kendall opined that the Illinois regulation is not preempted by ERISA, and that it applies even where the grant of discretion appears in plan documents other than the insurance policy itself. While the Court of Appeals for the Seventh Circuit has yet to issue a decision on this issue, every time the district court has considered it, it has issued a similar holding. Every other Court of Appeals considering similar state laws has also held likewise.
If you have questions regarding your long term disability insurance, contact a reputable ERISA lawyer.